Toys R Us blames birth rate for business failure

I still remember experiencing the wonder of walking up and down the aisles of Toys R Us as a child visiting America from New Zealand. To be honest I think my parents were as awed as I was at the rows and rows of Barbie dolls and Ninja turtles, especially coming from a country that did not yet have such a huge range of mass-produced toys available.

It was a time when the age of mass materialism was only just upon us and held wonder and magic. I ended up buying a Little Mermaid sheet set and giant, long, variously coloured ice-blocks which we savoured all that summer, though I do now question my parents’ use of suitcase space.

However, Toys R Us has obviously not managed to maintain the magic. As it prepares to close its doors, people are questioning what went wrong for the once mighty, culturally emblematic business. In its court filing, one of the factors Toys R Us itself has blamed is the world’s low birth rates:

The decrease of birthrates in countries where we operate could negatively affect our business. Most of our end-customers are newborns and children and, as a result, our revenue are dependent on the birthrates in countries where we operate. In recent years, many countries’ birthrates have dropped or stagnated as their population ages, and education and income levels increase. A continued and significant decline in the number of newborns and children in these countries could have a material adverse effect on our operating results.

Although online competition and bad financial and operational decisions must also surely be factors, the company claims in its annual report that its income is linked to birthrates, and it appears to be right. Fertility has declined worldwide to unprecedented levels since the 1970s and by 2011 total fertility was below 1.4 children per woman in about half of developed countries. As The Washington Post observes, the change in the number of children born in the previous 12 years tracks closely with the company’s changing annual revenue, as shown by the following graphs:

Some are wondering if Toys R Us is just the first of many businesses to feel the economic effects of the lower population growth which will eventually affect the whole economy. I have pewviously discussed some of the far-reaching economic ramifications of an aging population here and in numerous other posts.

The economic effects will be still greater when the world’s population actually starts to decline. There are differing long-range population projections and they depend on a range of assumptions. One Austrian Institute estimates that there is an 85 percent chance that the world’s population will stop growing before 2100, and its most likely scenario is that global population will start to shrink around 2070. A recent comprehensive study by the International Institute for Applied Systems Analysis reached the same conclusion based on the input of over 550 experts.

So will be see more business failures blaming birth rates? Watch this space.